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Dave Wellenbrock Lesson from Romans: Don't spend relentlessly on defense

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Dave Wellenbrock

Posted: Wednesday, November 24, 2010 12:00 am | Updated: 5:12 am, Wed Nov 24, 2010.

Columnist Joe Guzzardi recently addressed the report of the Bowles Commission on reducing the budget. Unfortunately, the column turns out to be another version of NIMBY (Not In My Backyard) instead of a serious consideration of the preliminary report. However, I applaud his even bringing the issue before the readrs.

The columnist appropriately notes that he does not believe Americans are ready for an adult conversation about deficit reduction. That is unfortunate. The invasion by the Germanic tribes were catalysts, but the erosion of the tax base and relentless defense spending brought down the Roman Empire. An example to avoid.

The commission has made a number of very sensible suggestions to reduce the deficit. They deserve attention, not aside comments.

I offer a few comments on those raised by Mr. Guzzardi. Note that the three biggest sources of the deficit are (a) middle-class aid programs; (b) defense spending; and (c) a pretty botched tax system which grants virtually numberless tax breaks.

(a) These are Social Security and Medicare, including the recent additions of the prescription drug plan and the new health insurance plan.

Social Security would seem to be a no-brainer. When Social Security was enacted, the average recipient drew about 18 months of benefits. Folks now draw decades of benefits. The math is simple: either benefits go down in the future, or we draw the benefits later. As the benefits are not particularly high now and as we have reasonably relied upon the size of the benefits, it would seem clear that we must begin drawing later.

Indeed, the age of drawing benefits should reasonably vary over time as the ratio between the number of workers and retirees shifts. We need about four workers per retiree for solvency.

There could be a commission that made these adjustments mechanically, always erring on the side of fiscal responsibility.

(b) We spend as much as the rest of the world combined on defense. We have military installations in about 165 of the 189 nations of the world. We spend 4.7 percent of our gross national product on defense and Germany, which we help defend, spends 1.8 percent (and is reducing that amount). We have way too many generals.

We cannot afford this amount of spending, and we do not need it. We should be able to reduce our military spending by at least 1 percent of the GNP and still be very safe and technologically ahead. Retire the generals who have sinecures; end the unnecessary big-ticket items; eliminate some bases; and design the military to meet the current security problems, not those of the last century.

(c) The tax system: such a beast. A good system is simple, progressive, fair and adequate for the needed expenditures. Ours does not fit this description in any particular.

The loopholes are so great that the highest taxation level is on the middle class, the higher part thereof. Other than for the relatively poor, it is not simple. It certainly is not fair — why should the oil companies have the oil depletion allowance, which was a perk Lyndon Johnson gave them when he was in Congress, for no particular reason?

The folks who benefit from the current system are, in addition to the rich, tax lawyers and accountants and financial planners. These folks do not really add much to our productive wealth, but they cost a lot.

The one deduction that Mr. Guzzardi does single out is the mortgage interest deduction. He quotes a banker for its support: it would drive down home prices.

In fairness, there might be some effect. But the effect should be slight and one time. But the beneficiaries of the deduction have largely been the bankers and real estate industry. The bankers get to make bigger loans and the real estate folks get a bigger cut because there percentage comes off a bigger number.

This is all part of the financial industry sleight-of-hand story about tax deductions. They think these are wonderful. They aren't. They cost two cents for every penny of tax savings.

For example, if I have $100 in mortage interest, I get to deduct that from my gross income. From that I will get approximately $33 of tax savings. So it costs me $67 out-of-pocket to get that $33 of tax savings. The other $67? It goes to the mortgagor, a bank or trust company, or someone other than me. No wonder the banker likes the mortgage deduction. And what is unsaid is that housing prices would be more affordable for those who want to buy.

Mr. Guzzardi does make a suggestion: Cut the government, "cut salaries, reduce its size, get serious about defense spending." There are things to support these ideas. However, the problem is that he is vague. Which salaries need to be cut? What programs to be cut?

In reality, there is not a lot of discretionary spending. Maybe we ought to cut subsidies, which go mostly to corporations and the rich.

Mr. Guzzardi deserves credit for bringing the topic before us. Hopefully, there can be more discussions which do not rest on glib popular statements.

Dave Wellenbrock is a Lodi resident and semi-retired attorney.

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Welcome to the discussion.

2 comments:

  • Charles Nelson posted at 11:30 am on Thu, Nov 25, 2010.

    Charles Nelson Posts: 259

    Advocating for the omission of the mortgage interest tax deduction is simply a terrible idea. Banks are not going to loan money for free. If it were eliminated, my, and every other homeowners taxes would go up tremendously. All the housing industry needs right now is another hit. Other states charge a small fraction of what it costs in California for building permit fees, why don't we start there. The biggest industry in the history of our nation has been growth. It's the grease to the wheels of our economy. The mortgage interest deduction has been a big incentive to drive growth. Mr. Wellenbrock, would you consider paying rent to a landlord advantageous in comparison to paying interest to a bank? may have not attended law school, but I know an ignorant idea when I hear it.

     
  • stan taves posted at 9:00 am on Wed, Nov 24, 2010.

    Stan Taves Posts: 313

    Nicely done Dave. I, of course, would add that it is important to understand what taxation means in it's broadest sense. In other words... to tax means: to place a burden upon. The question then becomes: is the burden justified, or is it simply a manifestation of greed on the part of leadership? I would conclude that gov't ( fed, state, and local ) should not exceed 21% GDP -- with the possible exception for war, of course. That would give each segment of governance 7% of GDP -- about a trillion dollars each. Now of course we have created a system whereby the feds are able to manipulate the tax structure in their favor; and they, not surprisingly, are not the least bit interested in rolling trend back their position of dominance. So, what are we going to about it? Well, It looks like it is beginning to happen right now -- whatever it is.

     

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